Charest has not delivered tax cuts

April, 2007, will mark the fourth anniversary of Jean Charest’s election as Premier of Quebec. There are rumours of a fall election and ministers have started touring the province to announce new spending programs and other pre-election goodies. The Quebec Liberal Party had not promised a drastic reduction in the role and size of government. It did, however, promise to cut taxes and lighten the weight of government. Has it done so?

The QLP 2002 Action Plan was most explicit in the area of taxes: “Beginning with the very first budget it tables, a Quebec Liberal Party government will launch a plan to reduce personal income taxes by $1-billion annually over a five-year period.” This promise has not been kept. The Liberal government’s first budget in June, 2003, contained no tax cuts. The next three budgets cumulatively reduced the tax burden by about $626-million (at the end of the 2006-2007 fiscal year). This, compared with the $3-billion required to meet the pledge in the Action Plan (if one leaves out the first budget), amounts to about one-fifth of the promised objective.

The only reductions in the past four years come not from a decrease in taxation rates but from the effects of simplifying the tax regime (merging the general tax regime and the so-called simplified one) and from introducing a $500 deduction for workers (rising to $1,000 on Jan. 1, 2007).

In their official documents, the government and the party claim to have cut taxes by $2.9-billion. But they inflate the numbers by adding refundable tax credits and amounts resulting from the indexing of tax brackets. The tax credits, related mainly to the new child support and work premium programs, consist of subsidies to families and low-income wage-earners. They are distributed even to persons who pay little or no tax (this is what “refundable” means). It is thus misleading to refer to them as a tax cut. As for indexing, it merely prevents real taxes from rising with inflation and was, in any case, instituted by the previous Parti Quebecois government.

In terms of expenses, real per capita program spending under the Charest government continued rising as it had started to do late in the first of two recent PQ mandates, though at a slower pace. Since 2003-2004, it has gone from $6,445 to $6,651 (at the end of the current fiscal year). It is true that the ratio of program spending to GDP fell from 18.1% to 17.7% between 2002-2003 and 2005-2006 (with a forecast of 17.6% for 2006-2007). However, with real spending up, this reduction is due solely to the rise in GDP. The two preceding Parti Quebecois governments presided over an even greater reduction in the ratio, which had stood at 21.3% in 1994-1995 and 18.9% in 1998-1999.

Despite the “zero deficit” promise, two of the past four years have been marked by slight deficits. In addition, because of capital spending not accounted for in the official budget, the government debt has kept on rising and now stands at $118-billion. It has nevertheless fallen as a proportion of GDP and the main credit rating agencies have raised the government’s rating.

The Liberals specifically pledged to replace only one civil servant out of two as they went into retirement. Indeed, the number of civil servants, after peaking at 75,800 in 2003-2004, has fallen by 2,500 (in full-time equivalent) since then, with the goal being a 20% reduction over 10 years.

In terms of government bodies, 16 were officially abolished by the Charest government. However, in about half the instances, the responsibilities of abolished bodies were transferred elsewhere in the government apparatus. Moreover, since other entities were created to administer new programs, the effect has been even more modest. On June 6, the government Web site presented a list of more than 200 agencies, boards and commissions. Abolishing about 20 more of these is still planned.

Despite the cries of unions and community groups accusing it of seeking to “dismantle the Quebec state,” there has been no revolutionary change in Quebec in the past four years. The province remains among the most over-taxed and over-governed jurisdictions in North America.

Tasha Kheiriddin is executive vice-president of the Montreal Economic Institute.

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